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Argentina dealt double blow by justices over debt

June 16, 2014

WASHINGTON (AP) — The Supreme Court on Monday handed Argentina a double defeat in its long-running fight with holders of its defaulted bonds, despite the South American country’s pleas that its economy could be threatened if it has to pay off the old debt.

The justices rejected without comment Argentina’s appeal of judgments ordering it to pay more than $1.3 billion to hedge funds that hold some of the country’s bonds.

Then, in a 7-1 ruling, the high court said the bond holders could use American courts to force Argentina to reveal where it owns property around the world. The decision should make it easier for them to collect on court judgments.

The legal fight stems from debt that has been unpaid since the country’s 2001 economic crisis. Investors holding more than 92 percent of Argentina’s defaulted debt agreed in 2005 and 2010 to write off two-thirds of their pre-crisis value, providing debt relief that enabled the economy to rebound.

But some of the holdouts sued, including hedge funds led by billionaire Paul Singer’s NML Capital Ltd.

The investors won an unprecedented judgment that would block Argentina’s payments to many other bondholders unless it pays cash first to the plaintiffs.

Argentina asked the Supreme Court to intervene because it said that making the country pay cash in full to investors who didn’t accept bond swaps in exchange for defaulted debt could destabilize the global economy by making other voluntary debt restructurings much harder.

Lawyers for Argentina said that full payment would cut the country’s reserves roughly in half. They also said that lower courts which ruled against Argentina were ignoring federal law that generally protects other nations in American courts and could make U.S. assets more vulnerable to lawsuits filed abroad.

But the court declined to get involved in the case Monday.

The government of President Cristina Fernandez did not immediately comment on the ruling.

Ramiro Castineira, an economist with the Econometrica consulting firm, told The Associated Press in Buenos Aires that the ruling doesn’t necessarily mean an automatic default.

Castineira said, “what remains to be negotiated is the form of payment. The country has sufficient reserves and if it shows a willingness to pay it will get financing, I have no doubts. ”

In the separate ruling, the justices rejected the country’s efforts to try to prevent NML and the other investors from learning about Argentina’s property around the world.

The question was a relatively narrow aspect of the debt issue, whether a sovereign nation can be forced to reveal assets around the world so plaintiffs can collect on U.S. court judgments.

Justice Antonin Scalia wrote the majority opinion, in which he said federal law offers no shield to Argentina.

In dissent, Justice Ruth Bader Ginsburg said the ruling would lead to a “sweeping examination of Argentina’s worldwide assets.” Ginsburg said she would have narrowed lower court orders in favor of the bondholders to exclude diplomatic, military and national security property owned by Argentina.

Justice Sonia Sotomayor took no part in either case.


Associated Press writer Almudena Calatrava contributed to this report from Buenos Aires.

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